The Health Care Economic-Industrial Complex: Concepts and General Characteristics

Vol.5, No.10, 1607-1621 (2013) Health http://dx.doi.org/10.4236/health.2013.510217

The health care economic-industrial complex: Concepts and general characteristics

Carlos Augusto Grabois Gadelha¹*, Laís Silveira Costa², José Manuel Santos de Varge Maldonado³, Pedro Ribeiro Barbosa4, Marco Antônio Vargas5

1Science, Technology and Strategic Inputs, Ministry of Health, Brasilia, Brazil; *Corresponding Author: [email protected] 2Research Group Innovation in Health Care, Oswaldo Cruz Foundation (Fiocruz), Rio de Janeiro, Brazil 3Professional Master’s Degree Course in Politics and Management of Science, Technology and Innovation in Health Care, Sergio Arouca School of Public Health, Oswaldo Cruz Foundation, Rio de Janeiro, Brazil 4Management and Institutional Development, Oswaldo Cruz Foundation (Fiocruz), Rio de Janeiro, Brazil 5Department of Economics, Faculty of Economics, Universidade Federal Fluminense, Niterói, Brazil

Received 19 July 2013; revised 20 August 2013; accepted 15 September 2013

Copyright © 2013 Carlos Augusto Grabois Gadelha et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

ABSTRACT decade, in various fields of study and activity. It plays an important role in fostering economic growth and national The strategic role of health care within the Bra- competitiveness as its productive complex, known as the zilian development agenda has been increas- “Health Care Economic-Industrial Complex” (HEIC)1, is ingly recognized and institutionalized. Aside constituted of a number of important sectors, such as the from its importance as a structural element of chemicals and biotechnology industries (pharmaceutical the Welfare State, health care plays a leading industry, vaccines, blood derivatives and diagnostic re- role in generating innovation. Despite this, the agents); mechanics, electronics and materials (medical productive base of Brazil’s health care system is equipment and materials); as well as the services sector extremely fragile, jeopardizing both the univer- (hospitals, outpatient clinics etc.). Furthermore, Health sal provision of health care services and the Care accounts for 12% of Brazil’s employed workforce, country’s competitive insertion in the globalized represented by both direct and indirect jobs in industries, environment. This suggests the need for a more hospitals, laboratories, in services offering diagnostics systematic analysis of the complex relation- and treatment and in the commercial area. ships that exist between the technological and In Brazil, the national HEIC accounts for 9% of Gross the social interests involved in the productive Domestic Product (GDP), for approximately 25% of total base of health care provision in Brazil. Therefore, spending on Research and Development (R & D) and the purpose of this article is to enhance our generates 12 million direct and indirect jobs [3]. From understanding of the productive base of health this perspective, it would not be erroneous to state that care, especially given its potential to contribute the economic dimension of health care innovation is to a socially inclusive development model, which largely associated with the dynamism present in eco- is the ultimate goal in Brazil. nomic growth rates, resulting from the high degree of innovation among the productive industries of the com- Keywords: Technological Development Policies; Health Care Sector Economics; Health Sciences; 1The conceptualization of the Health Care Industrial Complex (HIC), Technology and Innovation Management; Policies or Health Care Productive Complex [1,2], is strictly identical to that of and Cooperation in Science, Technology and the concept of the Health Care Economic-Industrial Complex (HEIC). Innovation This newly proposed terminology stems from the fact that the use of the term “HIC” had become largely restricted to industrial segments, attenuating the systemic character of the approach that also incorpo- rates the segment of health care services. In this paper, the terminol- 1. INTRODUCTION ogies “Health Care Productive Complex”, “Health Care Complex”, “Productive Complex” and “Complex” will be employed indiscrimi- The strategic importance of health care has been nately to designate the “Health Care Economic-Industrial Complex” or widely recognized in Brazil, particularly during the last its acronym “HEIC”.

Copyright © 2013 SciRes. OPEN ACCESS 1608 C. A. G. Gadelha et al. / Health 5 (2013) 1607-1621 plex. system of goods and services in this field. The relevance From this one can conclude that development process- of adopting this concept derives from the fact that this ses are not just a question of growth, as growth alone broader perspective is best suited to promoting the de- does not raise any qualitatively new phenomenon [4]. velopment of tools, and helps one analyze public inter- Similarly, Reference [5] pointed out that the main task of vention [6]2. humanity in the twenty-first century would be to estab- From this perspective, this article seeks to contextua- lish new priorities for political action in light of a new lize the HEIC and the three subsystems of which it is concept of development, one that would include society comprised: the chemical and biotechnology segment, the as a whole. mechanical, electronic and material segment and the In this particular theoretical model, the development health care services segment, and it presents scenarios, pattern must cease to reproduce the consumption patterns policies and proposals over the medium and long terms of certain minorities and instead seek to meet the basic for each one. Finally, it summarizes some political-in- needs of all people. In health care, this process, more stitutional characteristics of the Productive Complex as a than in any other field, is crucial due to the fact that the whole. analysis of health care priorities presents important challenges that require a systemic view. Such an analysis 2. THE HEALTH CARE should consider the institutional model of the health care ECONOMIC-INDUSTRIAL COMPLEX: system, the composition of public and private investment THE PRODUCTIVE BASE OF THE in health care, the demographic and epidemiological NATIONAL INNOVATION SYSTEM IN changes that have taken place, new technological de- HEALTH CARE mands on the provision of services, economic and market The Health Care Productive System is particularly dynamics, relations of production and other crucial complex since it combines the generation and dissemina- components that should be analyzed systemically if one tion of technologies, the Welfare State, multi sectorial is to better understand a given health care system. institutional dynamics, and involves both public and pri- With this view in mind, the role of health care within vate sectors. The analytical dimension of the HEIC im- the development agenda has been institutionalized by the plies a differentiated set of institutional arrangements Brazilian government in recent years, as can be seen that include productive sectors and chains, science and from a series of initiatives that have been implemented in technology organizations, enterprises, and regulatory order to integrate industrial policies and health care ser- agencies in the areas of health care, intellectual property, vices. However, despite these efforts, the lack of suffi- and industrial, scientific and technological policies, cient coordination between social, economic and innova- among others. For this reason, health care is considered tion policies, as well as the asymmetry of forces that ex- as a strategic field within the National Innovation System, ist in the health care agenda, has jointly ensured that a stressing the importance of developing adequate policies hierarchical relationship between the interests involved and investment for this sector. has persisted, thereby jeopardizing the achievement of an The HEIC represents an opportunity to overcome the inclusive national development pattern. tensions that exist between the economic and the sanitary Growing health care needs, the strategic nature of the logics involved in health care and industrial development industries involved (a door to the future) and the pressure policies. Despite its complexity, the systemic character- they exert on the balance of payments are clear indicators istics of the HEIC define a connection between economic of the non-trivial challenges that must be overcome when and social logics. In fact, building a universal health care considering the productive and sanitary aspects of health system that is able to meet the population’s health care needs, as proposed in Brazil, presupposes the expansion care. All this lends weight to the importance of gaining a of the national health care productive base. The historical deeper understanding of health care’s productive base, inobservance of this relationship has led to the develop- the dynamics of its subsystems and the diverse interests ment of this productive complex without consideration involved, which is the purpose of this article that, in the- for its systemic characteristics, thus harming the nation’s oretical and conceptual terms, refers to the Neo-Schum- capacity to deliver effective healthcare services and peterian evolutionist approaches to the HEIC. goods, and hindering the effectiveness and competitive- The concept of national innovation systems includes ness of the national HEIC to produce suitable social and all aspects of the economic structure and institutional economic results. framework that affect learning processes, and the gen- The constitution, in Brazil, of an endogenous innova- eration and diffusion of innovation. The concept of the tion base requires the structuring of a network of State HEIC provides a specific focus of the national innovation systems in health care, which favors the production 2For details see [7-9].

Copyright © 2013 SciRes. OPEN ACCESS C. A. G. Gadelha et al. / Health 5 (2013) 1607-1621 1609 institutions that give support to a national strategy, simi- tion of paradigms and technological paths points to the lar to that seen in the areas of energy and agriculture, systemic characteristics of this Productive Complex [2]. where Petrobras and Embrapa anchor the innovation The set of economic sectors which comprise this Com- process and link it to the private sector. Considering the plex are outlined here, based on this concept. Its systemic specificities of health care, the goal for a national expan- characteristics become visible through its three subsys- sion of Fiocruz, as expressed in Mais Saúde3, should be tems (services; the chemicals and biotechnological in- furthered in order to better face the challenge of consti- dustry; the mechanical, electronic and materials industry) tuting a regionalized national innovation network, which and particularly by that of services, since the production would connect this key Science, Technology and Innova- of the other sectors necessarily converges on the provi- tion (ST & I) and health care institution to similar na- sion of health care services, making it the key productive tional health care institutions (Instituto Nacional de force behind the evolution of both the National Innova- Câncer, Instituto Nacional de Traumatologia e Ortope- tion System in Health Care (NISH) and the HEIC. dia,, Instituto de Cardiologia, among others) and other The coordination of services with industrial activities strategic institutions of innovation in the field of health is a central element in the process of the generation and care. This would be crucial for a long term perspective, dissemination of innovation that determines the evolu- which would connect the social and the economic di- tion of national productive structures. It is indeed in the mensions and which could guide and make an adequate services sector that lies the potential to overcome the pattern of technological innovation viable, both in the dichotomies that exist between social and economic di- public and the private sectors, thereby allowing for a mensions, between the nature of industrial activities and qualitative leap within an extremely competitive and that of services, and between social and innovation poli- threatening international environment. Ultimately, it cies and those aimed at the development of production. would only be by confronting the challenges posed to The intrinsic relationship between the public health innovation in health care and to the reduction in interna- care dimension and the productive one is evidenced in tional asymmetries that one could achieve full access to Figure 1, which summarizes the concept of the HEIC by health care for all, irrespective of the technological com- expressing the relationship between the services sector plexity of the goods and services involved. and a set of economic-industrial activities. That is, it The concept of the HEIC emphasizes precisely the re- emphasizes the association of hospital, laboratorial, di- lationship between innovation, productive structures and agnostic and treatment service provision (services) with healthcare services, whose interdependence in the evolu- that of pharmaceutical, vaccines, blood derivatives and

Figure 1. Health care industrial complex morphology. Source: [2].

3A national program developed by the Ministry of Health and launched in 2007 that stressed, among other priorities, the importance of developing R & D in health care.

diagnostic reagents industries (chemical and biotechno- 3. THE CHEMICALS AND logical industrial base), as well as that of medical-ho- BIOTECHNOLOGICAL BASE spital equipment, medical and dental supplies (mechani- SUBSYSTEM cal, electronic and materials industrial base). The development of the chemicals and biotechnologi- Thus, in order to analyze the political priorities of the cal base subsystem directly impacts the capacity to pro- sector, some important challenges are posed which re- vide universal health care in Brazil, since it accounts for quire a systemic approach to health care. One must, for the production of drugs and medicines, vaccines and se- instance, consider the institutional model of the Unified 4 rum, blood derivatives and diagnostic reagents. This Health System (SUS) , which is universal, as established subsystem is characterized by its economic relevance and under the Brazilian Constitution. This characteristic should define, with respect to investment, the optimal by the mastering of technologies in strategic areas. Em- combination between the composition of public and pri- phasis is given to the need for a systemic approach to vate resources: the public should prevail, as in all uni- productive segments that comprise the HEIC, since the versal health care systems around the world. In Brazil, competitiveness of the chemicals and biotechnological this combination is highly inadequate since most of the subsystem mobilizes areas that are strategic to the ad- national Health Care system is, in fact, supported by pri- vancement of health care, as, for instance, in the case of vate resources, which constitutes a major barrier to the biotechnology, nanotechnology and fine chemicals. Such consolidation of an effective system of social welfare in characteristics reveal the urgency to adapt policies aimed the country. at the development of this productive base, taking into Furthermore, changes in the demographic and epide- account the specific characteristics of the Unified Health miological profile and new technological demands in System (SUS). healthcare must also be taken into account in the plan- The Brazilian pharmaceutical market had a turnover of ning of HEIC development policies. The main changes nearly US$25.4 billion in 2012 [10]. Developing coun- that have been observed in the health care area refer to tries will contribute 31% to the growth of the global increases in both life expectancy and the complexity of pharmaceutical market in the period 2011 to 2016, in- morbidity and mortality profiles, which have increased cluding 30% provided by Pharmerging nations, while the incidence of chronic degenerative diseases. Such a Europe (France, Germany, Italy, Spain and United scenario puts increased pressure on the industrial and Kingdom) will contribute 13% and North America 31% service-providing systems, and requires a greater effort in the same period [11]. It is estimated that the Brazilian on the part of national policies in order to remove the pharmaceutical market will show a growth of 12% to technological gap between Brazil and the more devel- 15% per year, similar to the estimates for other emerging oped countries. For a better understanding of the chal- markets, such as China (15% to 18%) and the Russian lenges and opportunities related to the indispensable ad- Federation (10% to 13%). Furthermore, the trade deficit vancement of health care knowledge, one should further related to the pharmaceuticals market totaled US$ 5.1 analyze the characteristics of this productive base, that is, billion in 2012 (Figure 2), representing approximately of the three subsystems which form the HEIC. 65% of the whole chemical and biotechnological sub-

Figure 2. Evolution of the pharmaceutical industry’s trade balance (amounts in US$ billion, adjusted using the North-American Consumer Price Index)—2013. Source: Own elaboration from data provided by [12].

4Brazil’s Healthcare System (SUS) is a decentralized, regionalized and hierarchized system, mainly characterized for having a policy of universal, complete and non-discriminatory access.

system trade deficit, of US$8 billion. Such a deficit, be- technological, economic and competitive convergence sides indicating a degree of economic vulnerability, may be observed, in which the leading pharmaceutical points to the nation’s fragility regarding health care enterprises invade and subject the other segments of the knowledge, and signals certain particular threats to the chemical and biotechnological base to their own innova- management of public health care in this country, for, on tion strategies. This has lead some authors to claim, as in the one hand, it unveils the vulnerability of the National the case of vaccines [1,18], that the distinct segments Health System and, on the other, it makes it clear that the have become market spaces within a differentiated oli- need to associate the growth in the national productive gopoly, whose competition is expressed in particular capacity with active innovation strategies is related to groups of products (therapeutic class, biotechnology seg- new technological platforms that are based on the ad- ment etc.). vancement of biotechnology, fine chemicals and natural In Brazil, the path to development of the vaccines in- products. dustry has been marked by the predominant participation The pharmaceutical industry is characterized by high of state-owned laboratories, including Bio-Manguinhos/ levels of internationalization and the industrial concen- Fiocruz and Butantan, whose main purpose has been to tration of large companies in the sector (the ten largest supply the Brazilian public sector. The most significant enterprises account for nearly half of the sales of the entry of the country into the manufacture of healthcare whole pharmaceuticals market). This reveals significant products comprising modern biotechnology has been entry barriers into market economies in view of the high made possible through the association of an investment expenditure on R & D that is characteristic of this sector program for enhancing the capacity for internal supply [13,14]. In spite of this characteristic, some niche mar- and for improving quality with the consolidation of na- kets can be identified that allow for the participation of tional demand through the National Program of Immu- smaller companies, which may represent an opportunity nizations (NPI). for Brazilian enterprises; this refers to the markets for In 2012, the government’s imports of vaccines for generic drugs, similar products, pharmochemicals for human use totaled US$585 million, and the State was widespread use, among others. The recent increase in the responsible for more than 95% of the doses produced, participation of Brazilian enterprises in the market has with an expressive evolution of the market [19]. How- essentially been due to the opportunities created by the ever, in spite of advances in the nation’s capacity to segment of generic medicines, to strategies of mergers produce vaccines and sera, one can still note consider- and acquisitions [15,16], and to the intensification of able external dependency, especially regarding the en- innovative activities [17], although that said, given the dogenous development of new products and processes. restrictions that exist in relation to the size of the players Currently, the main challenge faced refers to the link involved, such innovations have been incremental. One between production capacity and innovation capacity, by should note that the pressures on the pharmaceutical consolidating endogenous R & D activities within the market—a segment that leads the dynamic of the sector productive environment. in view of the weight of its participation within the sub- Such a strategy is already on the agenda of major system—impose a set of new challenges, suggesting the state-owned laboratories (Bio-Manguinhos/Fiocruz and need to encourage a greater nationalization of this seg- Butantan), as can be seen, for instance, in their current ment, the development of more robust innovation strate- plans for vaccination against pneumococcus, within the gies and a consolidation of the production chain. scope of the National Program of Immunizations. This With respect to political proposals for the pharmaceu- program involves the setting up of an R & D center spe- tical sector, incentives have been suggested for research cialized in vaccines—the result of an agreement between and innovation in segments related to diseases that have Fiocruz and GlaxoSmithKline—within the context of the been neglected, and the implementation of transversal political priority for innovation in health care. Neverthe- initiatives for technological support—elements that are less, a qualitative leap is still necessary in order to main- still quite deficient in the national market and contribute tain a degree of dynamism over the medium and long to the low levels of innovation experienced in this Indus- terms. trial segment. The blood derivatives industry, meanwhile, constitutes Besides the general characterization of the pharmaceu- one of the therapeutic classes of the pharmaceutical in- tical industry as a competitive space that determines the dustry, developing highly complex activities in the bio- dynamics of the chemical and biotechnological subsys- technological field through the processing of human tem, some particularities of the other segments are worth plasma. The main peculiarity of this segment in Brazil emphasizing, such as the production of vaccines, blood refers to the fact that the Brazilian Constitution prohibits derivatives and diagnostic reagents. Although these seg- the commercialization of blood and its derivatives. On an ments sometimes hold their own peculiarities, a clear international level, the production of blood derivatives

Copyright © 2013 SciRes. OPEN ACCESS 1612 C. A. G. Gadelha et al. / Health 5 (2013) 1607-1621 occurs in a limited number of countries, and is concen- Future Prospects trated among few manufacturers, thereby following the The One of the factors that underlies both the medium same pattern as seen in the pharmaceutical industry. and long term prospects for investments and the devel- In Brazil, although there is a potential supply of opment of the chemical and biotechnological subsystem 400,000 liters of plasma per year, the market is strongly is the dynamic of the world and national pharmaceutical dependent on imports. In view of this, the Ministry of markets, forecast to grow at a rate of 3% to 6% in the pe- Health launched, in 2001, a program aimed at the use of riod 2011 to 2016 [11]. One should not that, according to this home-produced plasma, by hiring the services of studies developed by IMS Health, it is estimated that the foreign enterprises for the purpose of plasma processing Brazilian pharmaceutical market will present a growth and fractioning. This strategy, however, led to an explo- rate of between 8% and 11% per year, lower than the sive growth in the trade deficit of the blood derivatives estimates for other emerging markets, such as China segment. In 2012, the blood derivate trade deficit repre- (18% to 21%) and the Russian Federation (16% to 19%). sented US$1.8 billion, accounting for about 17% of the Another factor exerting influence on this subsystem re- total trade balance of the Health Complex [19]. Today, lates to the expiration of the patents of several drugs the main initiative aimed at expanding plasma fraction- commercialized by multinational pharmaceutical compa- ing activities in Brazil is related to the operational launch nies in the Brazilian market. This reinforces the trend of of Hemobras, the Brazilian Company of Blood Deriva- the increased participation by generics in 2011, which tives and Biotechnology. The creation of this enterprise represented about 18% of the national market [21]. is part of a Brazilian strategy to attain self-sufficiency in With regard to the new technological trajectories ob- the production of blood products, a goal whose major served in this industry, the strong worldwide movement challenge is focused on the coordination of this invest- of mergers and acquisitions among pharmaceutical and ment with technological and innovative capacities. biotechnological companies is worth noting. Through Finally, the industry of in vitro Diagnostic Reagents this movement, such companies seek to strengthen their (DIV) is characterized as a highly concentrated segment, productive and financial bases in order to achieve eco- with an annual turnover of nearly US$25 billion [20]. nomies of scale and to attain synergies in R & D invest- The growing movement in mergers and acquisitions among enterprises in the segment of reagents, besides ment, ultimately seeking new niche markets and future being strategic for the competitive re-positioning of these profitability. firms, creates barriers to the entry of new enterprises into Given this industry’s trends, and considering the main this market. Brazil is currently the 8th largest market in policy guidelines for development drawn up over the the world for in vitro diagnostic reagents and has con- past 10 years that have emphasized the importance of tinually attracted multinational companies, thanks to a innovation to such development, as we shall see later, combination of the expansion of the local market and the one must strengthen and expand the technological com- rapid growth in public health care expenditure. At pre- petence of the national pharmaceutical industry, since sent, the 10 largest enterprises in the world in the seg- this industry clearly has weaknesses in its innovative ment of diagnostic reagents already have either offices or dynamic. In the medium term, and principally in the long manufacturing plants located in Brazil. term, the expectations are that existing bottlenecks in the The public sector represents about 60% of the orders productive structure of this subsystem will be overcome, received by manufacturers for diagnostic reagents and thereby attaining the desired modernization of the indus- the main market strategy of multinational enterprises trial park, a competitive equilibrium in the trade balance operating in the country is to offer equipment leasing of this subsector, more employment and income genera- (commodatum) contracts conditioned to the monthly tion, and appropriate contributions to the consolidation consumption of a minimal quantity of kits by health care of the Brazilian health care system. establishments. The latter, with some exceptions, previ- Thus, the idea of supporting the formulation of poli- ously used to sign “closed” contracts for equipment cies for this whole subsystem implies the need to leasing (that is, they agreed not to use the kits of other strengthen the base of production and of incremental suppliers). This forecasting capacity in connection with innovation; giving priority to activities of incremental the way the acquisition process is conducted combined and radical innovation; constituting a favorable legal with the purchasing power of the State, results in more framework; adopting innovative boosting mechanisms; aggressive competition among suppliers in the industry encouraging the consolidation of the production chain regarding price, quality and technical advice offered. and the internalization of pharmaceutical production; However, in view of expertise they have in distinct seg- creating mechanisms for structuring systematic support ments, some enterprises establish particular niche mar- for innovation within enterprises and strengthening the kets with regard to the demand from the public sector. network of state-owned laboratories, including through

Copyright © 2013 SciRes. OPEN ACCESS C. A. G. Gadelha et al. / Health 5 (2013) 1607-1621 1613 the setting up of public-private partnerships, thus pro- markets; and the traditional adherence of enterprises to R moting both an interaction between the different agents & D [23]. within the NISH and the development of this subsystem The dynamism of the mechanics, electronics and ma- within Brazil. terials base subsystem is attributed to the incorporation of technological advances, to population ageing and to 4. THE MECHANICS, ELECTRONICS market growth, emphasizing the systemic connection of AND MATERIALS BASE SUBSYSTEM this industry to health care policies [24]. In this sense, we must note that the increasing demand for health care, The mechanics, electronics and materials base subsys- associated with similar growth in the pressure to control tem exerts a special influence on the capacity to provide comprehensive and universal health care. This fact republic and private sector expenditure, has led this indus- sults from the strong association there is between prod- trial segment to concentrate its efforts on the search for ucts and medical practices, since they determine which reducing the costs of treatment. technologies are incorporated into proceedings regarding In Brazil, this industry was first structured when the prevention, diagnosis and treatment of diseases. As a development plan that promoted import substitution was result, this segment illustrates well the relationship be- in force, in the period between the 1950s and the 1980s. tween the economic and health care logics, as well as the With the advent of commercial liberalization, there was a importance, for the health care sector, of actively and slowdown and a decrease in the participation of this na- conjointly participating in the formulation of policies tional segment. In the second half of the 1990s, the lack aimed at boosting the development of the sector, taking of competitiveness of national health care industry was into account SUS guidelines and the socio-sanitary char- further evidenced when the market expanded after the acteristics of the country. creation of the Real Plan as the weight of public demand The industries in this segment are characterized as increased, in result of the SUS’ implementation. oligopolies based on product differentiation and on the The importance of this segment is worth emphasizing supply of specialized goods, with frequent launches of within the broader conceptualization of development, new treatment and diagnostic options within short tech- since it accounted for 103,840 direct and indirect jobs in nological cycles. This exerts significant pressure on the 2009 alone. Furthermore, this industrial segment had a costs of health care provision. In 2008, the global market total turnover of US$4.42 billion in 2009. It is also worth of this subsystem was worth US$ 289 billion, with esti- noting that the most dynamic segments refer to medical- mated growth expected to reach US$487 billion by the hospital, implant and dental equipment, which represent year 2016 [22], and it can be characterized as an ex- 40% of national production [25]. Nevertheless, this in- tremely concentrated market, on the grounds of several dustrial segment still suffers from a low level of interna- factors such as: The institutional and business environ- tional competitiveness, which is clearly evidenced in the ment; the scope of the private market for health care with recent evolution of its trade balance, as shown in Figure capacity to absorb the supply; the strong role played by 3, pointing to a resulting deficit of US$ 2.5 billion in governments in the start-up process and in access to new 2012.

Figure 3. Evolution of the mechanics, electronics and materials industry’s trade balance (amounts in US$ billion, adjusted using the North-American Consumer Price Index)—2013. Source: Own elaboration from data provided by [12].

Future Prospects processes; incentives for the development of innovation clusters and for the full use of political and sectorial fo- The development of this production segment over the rums; creation of a regulatory environment that connects medium term, in Brazil, presents some positive indica- quality, innovation and the pressure to reduce costs with tors. These include a political-institutional convergence, national industries’ vulnerabilities, and finally, incentives based on the adoption of both the HEIC systemic ap- for the constitution of networks involving enterprises, proach and the political agenda of the pharmaceutical universities and technological institutes. In this sense, the segment by the Industrial Policy of Foreign Commerce, agreement signed in 2009 between Fiocruz and the Gov- and the priority that has been given to the initiative ernment of Ceará State for the construction of the first within the scope of the program “Mais Saude” as well as Brazilian Technological Pole, which will specialize in in the Policy for Productive Development; through the the Health Economic-Industrial Complex, is worth men- PAC of Innovation, coordinated by the Ministry of Sci- tioning. ence and Technology; and through the launch of Pro- 5 farma 2, by the national development bank (BNDES) . 5. THE HEALTH CARE SUBSYSTEM Furthermore, an expansion in direct foreign investment and in mergers and acquisitions, and the increasing This is the subsystem with the greatest economic use of information and communication technology have weighting within the whole system, whether because of been duly noted, boosted by new guidelines for cost re- its intrinsic relationship with employment and income ductions, greater agility in service provision and better generation, or because it constitutes the end market for quality, which suggests the need for more coordination the products of the other segments of the production between HEIC subsystems. To this, one should add the complex, thus disclosing the systemic characteristics of major advantage multinational companies have in enter- the health care productive base (HEIC). The health care ing the Brazilian market for manufactured products subsystem is structured according to health care systems without there being any domestic products to compete, whose organization is determined by epidemiological which refers not only to imports substitution but also to and demographic aspects. Health care services reveal the consolidation of the technological profile and of the important vectors that determine the system’s structure productive capacity of domestic industry. and performance, with a clear interconnection between In the long term, some elements in the health care field political, institutional, social and economic elements. It suggest an influence on the behavior of the medi- determines the directions of the national trajectories of cal-hospital materials and equipment industry. Among innovation as well as the global dynamics of investments these, the following are especially noteworthy: the pres- —issues that once again emphasize the intrinsic relation- sure to reduce costs (an ageing population and the ex- ship between health care and development. pansion of health care services); preventive healthcare; Health care systems are coordinated in accordance telemedicine (with a particularly relevant impact given with diverse principles, where the levels of technological Brazil’s regional characteristics, and especially those of complexity and the economic scale stand out. The seg- infrastructure in health care units); home healthcare; and ment of hospitals and that of complex diagnostics and new technologies and the benefits associated with them. therapy centers are those which best illustrate the eco- These characteristics enable one to build long-term nomic dynamism of services, since they are concomi- sectorial policies that should include: use of the State’s tantly specialized producers and consumers of differenti- purchasing power; financing and other incentives for ated technologies and innovation. In observing the cur- mergers and acquisitions and professionalization of the rent trends of national and international markets, one can management of national enterprises; financing for in- perceive a gradual reduction in the role of hospitals in vestment in equipment and materials for the SUS; pro- this segment that becomes increasingly diversified as a moting exports (enhancement of the competitive advan- result of the configuration of health care integrated net- tages of national enterprises); incentives for the devel- works, at the heart of which primary healthcare acquires opment of infrastructure of technological services for the growing importance (Figure 4). The health care inte- qualification of suppliers – this can especially lead to grated system is configured by means of the incorpora- improvements in production, inventory and distribution tion of new technologies, internal reorganization of space, new forms of healthcare provision, as well as the search 5 PAC is an acronym for “growth acceleration program”, a highly pri- for new managerial tools and structures. Scientific and oritized program of the Brazilian federal government aimed at defining priorities for developing the country’s infrastructure in order to foster technological advances, previously only observed in national development. Other sectors have also defined strategic areas hospitals, are now gradually being transferred to other and specific plans, such as the Health care sector, with its Mais Saúde environments, leading to innovations such as day-care program, and the S & T sector, with its PAC for Innovation. By the same token, Profarma refers to an important investment program for hospitals, out-patient clinics, home care, nursing centers strengthening and developing national HEIC in Brazil. [26], among others.

The big issue this area faces is with regards to the li- mits in its growth which, in principle, could represent a negative factor for the constitution of a universal system in the country, since its focus is not only on the poor and excluded This is to say, the private sector currently serves 32% of the Brazilian population and should not be disregarded by governmental planning and programming of the health care network. This, however, has not been the norm, as shown by the constant difficulties experienced in implementing mechanisms for repaying the SUS in proceedings of greater complexity. From this perspective, the strengthening of the SUS and the gradual inclusion of the middle class appear to be urgent struc- Figure 4. Systems with a greater differentiation in services: tural requisites for configuring the SUS as a quality uni- configuration of integrated networks of health care services. versal system, involving distinct economic strata, even Source: Adpated from [27]. N.B.: Ambulatory equals special- more so within the context, recently much disseminated, ized out-patient clinic. of the expansion of the middle classes as a result of social improvements observed over the last decade. Other- Aside from the significant technological changes ob- wise, there is a risk of the SUS, defined by the Brazilian served in the health care model, the importance of the Constitution as a universal system, undergoing a reversal, priority of policies aimed at the development of the and becoming a focused system, low in quality and unat- whole HEIC becomes evident when demographic and tractive to society. epidemiological determinants are considered. These em- Not only has a financing base, compatible with the phasize the transformations in the profile of demand that commitment of constituting a universal system in Brazil, have taken place, with the population ageing and the not been created, but there are still persistent gaps in burden of chronic diseases increasing. healthcare provision in some regions and within metro- Based on the assumption of universal health care, and politan areas. That is, universal access still presents sig- considering the growing pressure for greater control over nificant limitations in quantitative, qualitative, regional health care expenditure, the need to search for more effi- and local terms. The extinction of the CPMF (a tempo- cient technologies for health care provision, with ade- rary tax on financial transactions, created with the pur- quate cost-benefit ratios becomes all the more evident. It pose of increasing the funding base of the public health is worth noting that these political determinants reveal care system), the failure to enact complementary legisla- the strong incoherence that exists in the public sector tion to Constitutional Amendment No. 29 (the EC29, financing of the SUS, whose participation does not reach clearly defining mandatory expenditure on health care) 50% of total health care expenditure [28], as shown in and the failure to approve alternative mechanisms for Table 1. funding the SUS (such as a Social Health Care Tax) Hence, the socio-political constitutional pact that es- clearly show the lack of political support for the actual tablishes a universal system cohabitates with the expen- constitution of a universal system in Brazil. The fact that diture structure of a mercantile health care system, whose the issue of how to fund the SUS has been debated pre- proportion of the private sector’s spending is incompati- dominantly within the health care sector sphere suggests ble with the notion of universal access. Data from the that the sustainability of a universal system has not yet National Agency of Supplementary Health (ANS) shows become a matter of sufficient importance within the that demand for supplementary health care has increased sphere of the executive and legislative powers. significantly, to a total of 48.7 million beneficiaries as at Moreover, there has been a progressive decrease in the the end of 2011 [29]. In a broader sense, the expansion of participation of federal funding, without, however there supplementary health care has been characterized by a being any sign of the necessary improvements in mu- wish to guarantee greater consumer rights, by extending nicipal management mechanisms, and without there be- the list of items covered (periodically updated), improving any evidence of the satisfactory performance of the ing the quality requirements for health care provision, states in the organization of a regionalized system. ensuring the economic sustainability of enterprises in the Consequently, federal spending remained practically sector, meeting contract responsibilities, and by imple- unchanged in relation to GDP (being 1.7% of GDP, in menting other measures of considerable impact on the 2007). In view of the decentralizing logic that guides the middle class, such as allowing for the portability of SUS’s operations, 70% of total federal spending is trans- Health Care Insurance. ferred to States, the Federal District and Municipalities.

Adding in the funds provided by the States and Munici- central role in the provision of health care services, ac- palities themselves, public expenditure on health care counting for nearly half of total national health care reached a total of 3.6% of GDP. The proportion of Gov- spending [30], and a relevant proportion of the popula- ernment Spending in relation to GDP and in relation to tion still enters the system through the hospitals. One Total Government Spending is incompatible with any should note that in the period between 1976 and 2005, universal system. Table 2 shows that even when consid- there was a significant increase in the number of hospi- ering Organization for Economic Co-operation and De- tals (35%), to 7,155 establishments, and yet there was a velopment (OECD) countries (which comprise non uni- reduction in the number of hospital beds [31]. versal systems such as that of the United States), there is With respect to the hospital segment, two trends have a huge disparity. In developed countries, public spending been consolidated: medium and large sized hospitals, represents more than 70% of total spending on health with better conditions of economic sustainability and care. There is no single universal system anywhere in the having greater technological density; and small hospitals, world whose public sector financing falls below this tending to specialize in more efficient and more effective threshold. In Brazil, meanwhile, a society with marked extra-hospital services. The dynamics of the hospital social inequality and with 68% of its population depen- segment in Brazil presents, however, a great challenge to dent on the SUS, the public sector’s participation is be- industrial policy with respect to hospital health care. The low 50% and, in addition, health care accounts for a decrease in the number of beds was not accompanied by small proportion of total government spending in com- a technological increment of hospitals that one would parison to other OECD countries (Table 2). It is abun- expect in view of the adoption of the integrated health dantly clear then that, irrespective of serious managerial care system, which presupposes an increased complexity issues, this financing is incompatible with the prime goal in hospital care and, thus, greater technological density. of providing the country with an equitable, comprehen- In short, when looking at the inventory of hospitals in sive and universal health care system. Brazil, one can observe that the country is following Aside from these relevant financing issues, one should neither the international trend, nor its own epidemiol- note the challenges faced by the SUS when considering ogical demands. the national trend towards the integration of the health care system, which include the need for a better man- Future Prospects agement of the resources that are available within the system and the need to shift the system’s patient entry In order to analyze the prospects for the health care point from hospitals to less technology driven service service subsystem in the medium term, the goals estab- providers, such as primary health care (PHC) providers. lished under the program “Mais Saúde” are taken into Despite this, in Brazil the hospitals continue to occupy a account, suggesting expectations of an increase in public

Table 1. Composition of final consumption in the health care area by institutional sector as a % of GDP—2003 to 2009.

Institutional sectors/products 2003 2004 2005 2006 2007 2008 2009 Households 4.8 4.8 4.8 4.9 4.8 4.7 4.8 Public Administration 3.2 3.2 3.3 3.5 3.5 3.5 3.8 Not for profit institutions providing services to households 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Total 8.1 8.1 8.2 8.5 8.4 8.3 8.7

Source: [3].

Table 2. Public spending on health care as a % of total health care spending and of government spending—Brazil 2003-2008.

Public Expenditure on Health Care as a % of Total Health Care Expenditure 2003 2004 2005 2006 2007 2008 OECD Average 71.9 71.8 72.0 72.7 72.7 73.1 Brazil 41.3 43.3 40.1 41.7 41.6 44.0 Public Expenditure on Health Care as a % of Total Government Expenditure 2003 2004 2005 2006 2007 2008 OECD Average 14.8 15.1 15.3 15.5 15.7 15.7 Brazil 4.4 5.1 4.7 5.1 5.4 6.0

Source: Own elaboration from data provided by [30].

spending proportionally higher than the growth in GDP. ing power. It is worth emphasizing that the rise in the share of public financing is a sine qua non condition for the effective 6. POLICIES FOR THE DEVELOPMENT consolidation of the public and universal system. Fur- OF THE HEIC—AN ANALYTICAL thermore, we emphasize the need for State mechanisms SYNTHESIS to decommoditize services concomitantly with the cur- Recent studies demonstrate the relative weighting of rent supply of services on a mercantile base. the health care sector within the economy. Activities In the long term, considering the institutional health related to health care accounted for about 9% of final care agenda, there is a perspective for spending on health consumption in the Brazilian economy in 2009 [3]. One care to grow, reaching 11% of GDP with the rise in the should stress the segment of health care services that, public sector’s participation, inverting the current distribution between public and private sector spending with a associated to those of the chemical and biotechnological predominance in the participation of the latter. The per- base, and those of the mechanics, electronics and materi- spective is for the government to become accountable for als base, show a vector of limitless innovation for the 70% of health care expenditure, thus reaching the level HEIC. of developed countries and consolidating an effective The consumption of health care reveals the relevance system of social protection. The rise in the share of the of the role of the State in this system, when one consid- federal government within the composition of health care ers the institutional model applied to the health care sys- expenditure presupposes complementary legislation to tem in Brazil. Being an important provider, a relevant Constitutional Amendment No. 29. consumer and responsible for almost 50% of its re- As for policies, the SUS requires new mechanisms for sources, in addition to having a regulatory role, between coordination and regulation in order to adequately im- them suggest the protagonism of the public sector, in- plement the regionalization of health care systems based cluding a role where it can put forward policies for the on the logic of sustainable arrangements, considering the HEIC’s development. Thus, a virtuous cycle could be necessary rationalization and integration of roles of the fostered involving public spending, investment, innova- several governmental spheres. For this to happen, a con- tion, and the expansion of income and employment. Fur- siderable degree of resolving capacity and the intensifi- thermore, with respect to the level of employment, cation of the basis of information technology (IT) are around 10% of Brazil’s qualified workforce works in the prerequisites. Such an intensive process of innovation field of health care [32]. reveals once more the systemic character of the HEIC, While the data indicates a clear connection between for requiring effective policies regarding the incorpora- health care and development, the national industrial tion of technology, which is determined by the improved base’s innovation capacity is still not sufficient to ensure regulatory capacity of the State and by certain techno- the full development of the HEIC, given the low partici- logical options made on proven cost-benefit bases. pation of enterprises in productive activities and high In the sphere of public sector investment, some poten- technology, as shown in Table 3 [33]. As a result, both tial strategies are highlighted, such as the establishment the competitiveness of the productive system and the of public-private partnerships, the need to reflect on the national health care policy, from a broader perspective of limitations of existing models and the demand for better universal social protection, are in a situation of extreme qualified Brazilian public sector management. Finally, vulnerability. the strengthening of the State’s role as a formulator and Moreover, the evolution of the national HEIC trade promoter of programs for health care provision and in- balance, shown in Figure 5, clearly illustrates this con- novation presupposes their technical and political juncture (deficit of US$10.2 billion in 2012) and high- strengthening, as well as the use of the State’s purchas- lights the fragility of the national productive and techno-

Table 3. Structure of innovative activities of industries in the complex (Brazil): the low level of investment by firms in innovation.

Innovative firms (%) Share of the turnover Innovation Rate Innovation Activity Internal R&D 2001 2003 2006 Year 2003 2005 2003 2005 2008 2003 2005 2008 Pharmaceutical 50.4 52.4 63.7 3.4 4.2 0.5 0.7 1.4 Equipment/Materials 45.4 68 * 3.1 5.3 1.2 2.3 *

Source: Own elaboration from [33] database.

Figure 5. Evolution of the Health Care Economic-Industrial Complex’s trade balance (amounts in US$ billion, adjusted using the North-American Consumer Price Index)—2013. Source: Own elaboration from data provided by [12]. logical capacity. Figure 6, meanwhile points to specific launch, in 2003, of the Industrial, Technological and areas where Brazilian vulnerability is at its highest in Trade Policy [34], by the Ministry of Development, In- showing the composition of the HEIC’s imports, exports dustry and Foreign Trade, which prioritized two issues and its trade balance. on the agenda of the extreme centrality of macro politics: It is pertinent to point out that this deficit shows, a defense of the need for an industrial policy and the se- among other things, that the level of expenditure on R & lection of some strategic sectors to foster national devel- D is insufficient when compared to the needs and ro- opment, including, drugs and medicines [34]. bustness of the national health care sector. One should In 2004, the National Policy for Science, Technology note that Brazil is the eightieth largest pharmaceutical and Innovation in Health Care (PNCTIS) was launched market and the eleventh largest market for medical during the 2nd National Conference on Science, Tech- equipment in the world. Despite this, and thanks to a nology and Innovation in Health Care. This program history of consistently inappropriate and sometimes even represented an important milestone in the advancement non-existent industrial policies, a lack of a systemic ap- of S&T in health care in Brazil in that it established proach to the development of the HEIC, regulatory and health care research as a crucial tool to improve the gen- financial ineffectiveness and insufficient levels of R & D eral health of the population [35]. expenditure, the deficit in the HEIC trade balance was a By the same token, emphasis on health care as a right sizable US$10.2 billion in 2012 [19]. of all citizens, and the importance of the HEIC within Analyzing this result from the perspective of certain this context, was reaffirmed by the “Mais Saúde” Pro- regional blocks and selected countries, one can see that gram, launched by the Ministry of Health in 2007, which the majority of Brazil’s HEIC deficit comes from trade defined the Health Care Industrial Complex as one of the relations with the European Union, although the recent main strategic priorities for health care policy [32]. It development of trade relations between Brazil and de- recognized the need for improvement in the innovative veloping countries like China, India and Russia might and productive structure in order to increase compete- require further attention. In the period from 1996 to 2012 tiveness so as to be able to face international competition the trade relations mentioned above increased fourfold, on an even footing. Thus, for the first time, the impor- indicating the fragility of CEIS competitive industries, tance of the HEIC was officially incorporated into the even when comparing to emerging countries themselves. social policy agenda in Brazil. One should note that the strategic nature of this complex In addition, health care was recognized as strategic to was only recently recognized within the scope of leading national development and identified as one of the areas national development policies, which could account for that invests most in research and development in Brazil. an as yet weak set of results in the outcomes of the new Health care was therefore singled out as a strategic area priorities set for the HEIC’s development. within the PAC for Innovation of the Ministry of Science One should, however take note of the efforts made by and Technology, in 2007 [35]. the Brazilian government over the past decade to try to With the HEIC now included on its list of six main improve the national system of innovation in health care, strategic areas (areas with doors to the future because of and try to reverse this adverse situation. From among the their intensive use of science and technology), the Pro- main government initiatives one should mention the ductive Development Policy (PDP) was launched in

Figure 6. Participation of the productive sectors in exports, imports and the HEIC trade balance in 2012. Source: Own elaboration from data provided by [12].

2008, emphasizing the need to improve national capacity active pharmaceutical ingredients under the so-called and competitiveness [36]. Productive Partnerships for Development—PDPs pro- Among more recent initiatives with an impact on gram. health care, we have the “Brasil Maior”, released in 2011 This initiative, introduced by the Ministry of Health in by the Presidency of the Republic of Brazil, and the “Na- 2009, as well as the Brasil Maior Program of 2011, be- tional Strategy for Science, Technology and Innovation tween them consolidate the strategic role played in Brazil 2012-2015” (ENCTI), implemented by the Ministry of by the development of the industrial park to improve the Science, Technology and Innovation, in 2012. supply of health care and access to essential medicines to The Brasil Maior Program offers a new understanding the population, to strengthen national laboratories and of industrial, technology, services and trade policy aimed companies, to reduce Brazil’s dependency on imports at stimulating innovation and domestic production to and hence help reduce the trade deficit. Partnerships be- boost industrial competitiveness, generating employment tween public and private entities in health care can help and income. Among its planned measures, it should be defend the public interests by achieving economic noted that the Government Procurement Law stipulates growth and developing a national productive sector that that a margin of preference of up to 25% can be estab- is able to produce according to Brazilian epidemiological lished in the bidding process for manufactured products needs [15]. and services that meet the Brazilian technical objectives Since 2006, the Ministry of Health has initiated a cen- for national development [37]. These margins cover tralized purchasing process with the aim of centralizing drugs (medicines) and biological products manufactured the acquisition of the total national demand for these in Brazil as well as health care equipment, and are de- products, promoting price reductions through negotia- fined taking into account the generation of employment, tions that take into account the high volume of purchases. income, innovation and technological development with- This centralized purchasing of strategic and high cost in the country. medicines by the Ministry of Health is the basis for the The ENCTI, in turn, reaffirms the priority of the drug effectiveness of the partnerships in question, given the (medicines) segment and production complex, pointing economies that can be achieved through public sector out a number of shortcomings in the innovative national buying. Thus, PDPs have a clear and exclusionary re- productive base that must be overcome, as well as em- quirement for approval which is that the prices offered to phasizing the need to promote mechanisms to stimulate start a new partnership should be lower than those prior innovation in health care and intensify the transfer of to its establishment. These prices should also be gradu- technology to the national public sector laboratories [38]. ally reduced over the life of the partnership. Through the ENCTI, the State has once again assumed One should also note the potential of the Brazilian its role in facing the challenges of redefining and boost- State to use its industrial equipment and materials pur- ing the development of health care’s productive basis chasing power, to name another example of its potential through the coordination of the multiple aspects in- influence on the industrial segment. In this case its direct volved. and indirect purchases represent a demand close to 50% One should also consider, especially from the point of of total sales by industry [39]. Thus the State, in its role view of the Health Care Economic-Industrial Complex, as a major consumer of goods and services from the efforts made to establish partnerships between govern- health care industries, can direct their development ment-run laboratories and private domestic producers of through preferential purchasing.

Public procurement, therefore, ensures that prices are nated policies, still very much lacking in most sectors, driven by demand and not by supply. Through it, the which can have a positive effect on both the provision of State can also use this artifact to stimulate economic ac- health care and on the overall performance of national tivity and employment, strengthen domestic firms, in- economic and social development. crease its competitiveness throughout the country, as It should be noted that the systematic interaction be- well as reduce regional discrepancies [40], remembering tween health care policies, services and industries, is an that public procurement should ultimately target invest- issue that relates to access to social justice, as guaranteed ment in physical infrastructure, strengthen human ca- by the Constitution of 1988, which should strengthen the pacities and contribute to the country’s overall develop- recognition of the strategic characteristics of the HEIC. ment [41]. Data show that there is still much to do in order to in- In this context, procurement and contracting are not crease investment in health care and overturn the weak- solely limited to the function of obtaining services, mate- nesses of its productive base. This requires, in essence, a rials and equipment for the running of government in deep transformation and an adaptation in the system of accordance with the law. This conclusion has been a re- promotion and regulation of health care innovation and curring theme in a number of studies investigating the policy, as well as an effective coordination between in- articulation and promotion of public purchasing innova- dustry, science and technology, which is both economi- tion, and the theme of seminal studies that were con- cally competitive and socially inclusive. ducted in the 1970s and 1980s involving public pro-

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